EXHIBIT 10.1
CONFIDENTIAL TREATMENT
SOFTWARE LICENSE AGREEMENT
This Software License Agreement ("AGREEMENT") is entered into as of the
21st day of September, 2000 ("EFFECTIVE DATE") by and between 3NO Systems, Inc.,
a New Jersey corporation having principal offices at Xxx Xxxxxx Xxxxx, Xxxxxx
Xxxxx, XX 00000 ("3NO"), and Larscom Incorporated, a Delaware corporation having
principal offices at 0000 XxXxxxxxxx Xxxxx, Xxxxxxxx, XX 00000 ("LARSCOM").
RECITALS
WHEREAS, 3NO has developed a certain broadband remote access server
technology for use in advanced communication systems;
WHEREAS, 3NO has developed a product known as the ISSANNI 1000 ("ISSANNI
1000" as further defined herein) which implements such broadband remote access
server technology;
WHEREAS, Larscom is engaged in the business of developing, manufacturing
and selling communication products, and wishes to license and acquire certain
rights to the ISSANNI 1000 and related technology, and 3NO wishes to grant such
rights to Larscom;
WHEREAS, Larscom wishes to develop and market products incorporating the
ISSANNI 1000 and related technology ("PRODUCTS," as further defined herein);
and,
THEREFORE, in consideration of the recitals and the respective covenants,
representations, warranties and obligations contained herein, and intending to
be legally bound hereby, the parties agree as follows:
1. DEFINITIONS.
a. "Confidential Information" shall mean (i) the terms and conditions of
this Agreement (ii) the Intellectual Property, (iii) any information including,
without limitation, technical data, know-how, research, products, hardware,
software (source code and object code), Source Code, services, deployment,
inventions, processes, engineering, and (iv) marketing, customers, pricing,
business plans and finances identified by the disclosing party to be
confidential.
b. "Customer" shall mean an entity to which Larscom licenses or sells a
Product.
c. "Hardware" shall mean the commercially available hardware integrated in
the ISSANNI 1000 as described in the Specifications.
d. "Intellectual Property" shall mean the Software and Specifications, and
any and all inventions, discoveries, know-how, concepts, research, works, ideas
and improvements conceived or developed by 3NO that relate to the ISSANNI 1000
regardless of whether a patent, copyright or another type of legal protection
covers that subject matter, and regardless of the tangible form of the subject
matter. Intellectual Property shall include all US and corresponding foreign
applications and registrations with respect to the ISSANNI 1000.
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY
FILED HEREWITH OMITS THE INFORMATION SUBJECT TO THE CONFIDENTIALITY REQUEST.
OMISSIONS ARE DESIGNATED AS *****. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN
FILED SEPARATELY WITH THE SECURITY AND EXCHANGE COMMISSION.
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CONFIDENTIAL TREATMENT
e. "ISSANNI 1000" shall mean the broadband remote access server technology
system developed by 3NO and consisting of the Intellectual Property, and which
is known commercially as the ISSANNI 1000.
f. "Net Sales" shall mean all revenues recognized in accordance with
generally accepted accounting principles from the sale of Products, less returns
and allowances (actually paid or allowed, including, but not limited to, prompt
payment and volume discounts, charge backs from wholesalers and other allowances
granted to customers or wholesalers of Products, whether in cash or trade),
freight packing, insurance, rebates, and sales and other taxes based on sales
prices when included in gross sales, but not including taxes when assessed on
income derived from such sales.
g. "Net Unit Sales" shall mean the aggregate number of Products that are
sold by Larscom during the term of this Agreement minus returns. Net Unit Sales
shall be exclusive of internal use, sale or use on approval, or temporary
disposal as may be the custom in the industry.
h. "Products" shall mean any products manufactured by or for Larscom or its
subsidiaries or affiliates that incorporate the Software.
i. "Software" shall mean version 2.0 of the software component of the
ISSANNI 1000 and all enhancements, modifications, upgrades, revisions, and
derivative works thereto developed during the term of this Agreement.
Such Software specifically includes Third Party Software.
j. "Source Code" shall mean the software or program code of the Software
expressed in a form suitable for modification by humans.
k. "Specifications" shall mean the specifications, bills of materials, part
numbers used, design, source and vendor information for the Hardware, and all
modifications or developments thereto. Specifications shall be further described
on the Statement of Work, attached hereto as Exhibit A. "Specifications" shall
specifically exclude any modifications, augmentations, derivations or
developments thereto made by or for Larscom.
l. "Territory" shall mean all countries in North America and all countries
which are members of the European Union or EFTA (European Free Trade
Association) as of the Effective Date. Upon express written agreement of the
parties, the Territory may be expanded to include additional countries of
Europe.
m. "Third Party Software" shall mean the software programs licensed by 3NO
which are embedded in or necessary for the operation of the ISSANNI 1000.
n. "Trademarks" shall mean the registered and unregistered trademarks of
the parties.
o. "User Documentation" shall mean all user guides relating to the ISSANNI
1000 provided by 3NO to Larscom hereunder. Documentation shall only be
considered "User Documentation" if 3NO has indicated that the same is intended
that to be distributed to Customer.
2. LICENSE.
a. Subject to the terms of this Agreement, 3NO hereby grants to Larscom the
following:
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CONFIDENTIAL TREATMENT
(i) a nonexclusive, worldwide license to the ISSANNI 1000 (including
worldwide sublicensable sublicenses to the Third Party Software) in order to
make, have made, use, import, offer to sell, sell, lease or otherwise dispose of
Products anywhere in the world;
(ii) an exclusive right and license to the ISSANNI 1000 (including
worldwide sublicenses to the Third Party Software) to make, have made, use,
import, offer to sell, sell, lease or otherwise dispose of Products in the
Territory upon payment, by September 29, 2000, unless extended by mutual
agreement of the parties, of the Fees as described in Paragraph 3a. Such
exclusive right shall be in force for a period of ***** commencing on *****.
Upon the sale ***** Net Unit Sales between the Effective Date and *****, such
exclusive right shall automatically be renewed.
(iii) a worldwide license and right to sublicense to Customers the license
and right to use, resell or repair the Products transferred to them by Larscom;
and
(iv) a right for Larscom to make an Equity Investment in the minimum amount
of $ ***** or more on the terms and conditions set forth in the Term Sheet
attached hereto as Exhibit B (the "Equity Investment").
(v) a right for Larscom to appoint one (1) Board member to the Board of
Directors of 3NO upon 3NO's receipt of the Equity Investment as described in
Section 2(iv).
b. Larscom will not disclose all or any part of any of the Software to any
person except as reasonably necessary to permit that person to use the Software
for the purposes explicitly permitted herein. Larscom may permit its employees
and consultants to have access to the Software, but only on a need-to-know basis
and only if each such employee or consultant is obligated under Larscom's
blanket agreement or a similar obligation of confidentiality.
c. Larscom recognizes that the Software (excluding the Third Party
Software) is the property and Confidential Information of 3NO and that Larscom
has only such rights therein as are expressly licensed by 3NO hereunder. Larscom
recognizes that the Third Party Software is the Confidential Information of 3NO
and that Larscom has only such rights therein as are expressly licensed by 3NO
hereunder.
d. All right, title and interest in and to the ISSANNI 1000, including, but
not limited to, ownership, copyright, patent and trade secret rights remain with
3NO.
e. In the event any products or technologies, other than those licensed
hereunder, are developed by 3NO during the term of the agreement, or any
extension, 3NO shall first offer to license such products or technologies to
Larscom, but only in the event that 3NO decides to license any such products or
technologies to any third party for the purpose of commercial exploitation. The
parties agree to negotiate in good faith with respect to the foregoing. In the
event that the parties cannot reach an agreement with respect to the terms of
any such additional license agreement(s) after such good faith negotiations, 3NO
shall be free to license any such products or technologies to any third party.
***** CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR THE REDACTED PORTIONS. THE
CONFIDENTIAL REDACTED PORTIONS HAVE BEEN FILED SEPARATELY WITH THE SECURITY AND
EXCHANGE COMMISSION.
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CONFIDENTIAL TREATMENT
f. Larscom may, at its own discretion, develop and manufacture other target
platforms that accommodate the Software. Any such platform sold will be subject
to the royalty payment obligations set forth in this Agreement. The parties
acknowledge and agree that
(i) any modifications to the Specifications; or
(ii) any other specifications, bills of materials, part numbers used,
designs, source and vendor information for hardware and all modifications
thereto;
(iii) made or developed by or for Larscom whether in conjunction with
development of such platform shall be the sole property of Larscom.
g. 3NO shall not disclose the Specifications or otherwise make available
the ISSANNI 1000 to any third party within the Territory. 3NO shall refer and
direct all potential marketing and sales opportunities for the Products of which
it is aware to Larscom.
Except for those rights expressly set forth above, Larscom shall have no other
rights with respect to the User Documentation or the ISSANNI 1000 by virtue of
this Agreement. Without limiting the foregoing, Larscom is expressly prohibited
from distributing the Software on a stand-alone basis, modifying the Software or
creating derivative works of the Software, except as otherwise described herein.
3. PAYMENTS. As consideration for the grant of the License and services provided
hereunder, Larscom shall pay to 3NO the fees and royalties set forth below. The
payments shall be made as follows:
a. FEES. Larscom shall pay 3NO an advanced pre-paid royalty fee of $ *****
(the "Initial Fee"). The first $ ***** of the Initial Fee shall be the "First
Fee." The second $ ***** of the Initial Fee shall be the "Second Fee."
(i) The Initial Fee shall be due as of the Effective Date or as
otherwise mutually agreed upon by the parties.
(ii) The First Fee shall be the royalties for the first ***** Net Unit
Sales. In the event that fewer than ***** Net Unit Sales occur by *****, this
First Fee shall be for the time period from the Effective Date until *****.
(iii) The Second Fee shall be the royalties for the second ***** Net
Unit Sales (numbered ***** to *****). In the event that fewer than ***** Net
Unit Sales occur by *****, this Second Fee will not be refundable and shall be
payment of royalties for ***** Net Unit Sales occurring after ******.
b. ROYALTIES. After complete and final payment of the Initial Fee, Larscom
shall make royalty payments to 3NO of ***** percent of the Net Sales Price of
Larscom's Net Unit Sales of Products.
c. All payments will be made in U.S. dollars. Royalty payments shall be
made quarterly no later than sixty (60) days after the end of each calendar
quarter, beginning with the calendar quarter after the first Net Unit Sale was
recorded. Any amount for which payment is not received by 3NO when due will bear
interest at the lesser of 1.5% per month or the maximum rate permitted by
applicable law. In addition to the royalty payments, Larscom shall deliver to
3NO a written report reflecting Net Unit Sales by calendar quarter, net royalty
payments, cumulative royalties and such other information to which the parties
agree.
***** CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR THE REDACTED PORTIONS. THE
CONFIDENTIAL REDACTED PORTIONS HAVE BEEN FILED SEPARATELY WITH THE SECURITY AND
EXCHANGE COMMISSION.
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CONFIDENTIAL TREATMENT
d. If 3NO grants a license to the Software to a third party anytime after
the Effective Date on terms that are similar to those granted to Larscom herein
and such license provides for a royalty rate more favorable than that granted to
Larscom pursuant to this Section 3, then Larscom shall be entitled to such lower
royalty rate as of the effective date of such more favorable license.
4. 3NO OBLIGATIONS; TRANSFER
a. Upon receipt of the Initial Fee, 3NO will initiate the full disclosure
and transfer of all information, materials and manufacturing assets necessary
for the full realization of the license rights including, without limitation,
information and documentation related to the design layout, and sources of the
ISSANNI 1000 as identified in the Statement of Work attached hereto as Exhibit
A.
b. 3NO will deliver the Specifications and three (3) copies of the Software
to Larscom by September 30, 2000. Such Software shall be on CD-ROM, or on other
media as mutually agreed upon by the parties.
c. 3NO will provide Larscom with two (2) working demonstration units of the
ISSANNI 1000 for testing and Hardware development purposes. Delivery of such
demonstration units shall occur by September 30, 2000.
d. 3NO will provide designated Larscom engineers, at no additional cost to
Larscom, with not less than eighty (80) hours training on the operation, use and
manufacture of the ISSANNI 1000, Software and Hardware. Such training shall take
place at the Larscom facility at a date and time mutually agreed.
e. 3NO will furnish whatever additional information or technical assistance
Larscom may reasonably require.
f. 3NO will assume all responsibility for Software warranty (as set forth
in this Agreement).
g. 3NO will place the Source Code in an escrow account pursuant to the
Escrow Agreement attached hereto as Exhibit C ("Escrow Agreement").
5. LARSCOM OBLIGATIONS.
a. LARSCOM SHALL USE ITS BEST EFFORTS TO:
(i) promote and market Products in the licensed Territory.
(ii) maintain adequate facilities and trained personnel to manufacture,
distribute, maintain and support the Products.
(iii) market and distribute Products consistent with good business
ethics and in a manner that will reflect favorably on the ISSANNI 1000 and the
goodwill and reputation of the parties.
(iv) handle all Customer inquiries, quotations, and orders promptly and
efficiently.
b. WARRANTY AND SUPPORT OBLIGATIONS OF LARSCOM. Larscom shall provide all
necessary and appropriate sales, technical, repair, service and warranty support
to the Customers in accordance with its applicable warranty obligations, normal
business practices and applicable law. Larscom shall be solely responsible for
providing first level support for the Products. Customers should be provided
with active support addresses and telephone numbers specifying Larscom. In
addition to any other actions that are necessary or appropriate to fulfill such
obligations,
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CONFIDENTIAL TREATMENT
Larscom agrees specifically to provide appropriate levels of sales and
technical support to Customers in the Territory to assure the satisfactory
installation, use and operation of the Products. Terms of providing technical
support shall be consistent with Larscom's current business practices in
connection with its other products.
c. Larscom will develop manufacturing documentation for the Products that
Larscom manufactures. Larscom will then further develop the hardware for
compatibility with European standards and will promote the Products using its
selling resources for the sales and distribution of the Products.
d. LARSCOM RESTRICTIONS. Except as expressly prohibited herein, Larscom
will not:
(i) Reverse engineer, disassemble, decompile, copy, modify, or
otherwise change the Software in whole or in part, or assist in any way,
directly or indirectly, in any effort to do so, except in performing its
obligations under this Agreement.
(ii) Use or transfer any copies of the Software, except in the
performance of this Agreement.
(iii) Make any representation, guarantee or warranty to Customers or
any other party regarding the performance or functional characteristics of the
ISSANNI 1000 inconsistent with the User Documentation.
6. MAINTENANCE.
a. All maintenance necessary to keep the ISSANNI 1000 operational during
the term of this Agreement shall be performed by 3NO. Such maintenance
activities shall include bug fixes, updates, enhancements and/or modifications
to the ISSANNI 1000. 3NO shall maintain all Software revisions and
configurations and ensure that Larscom has the most current copy available.
b. 3NO shall support, at no charge, Larscom Engineering and Customer
Service personnel, and support organization with technical assistance
specialists on a 24 hour-a-day, seven day-a-week basis. Such support shall
include appropriate escalation procedures. Larscom shall provide Level 1 support
to customers. 3NO shall provide Xxxxx 0 xxxxxxx. Xxxxx 0 and Level 2 support
requirements are defined in the Statement of Work.
c. 3NO shall promptly notify Larscom of any improvements to the Hardware,
including but not limited to, additions, modifications, Enhancements, updates
and revisions, made at any time during the term of this Agreement.
d. 3NO and Larscom shall develop protocols with respect to the resolution
of any problems in the Hardware and the implementation or embedding of the
Hardware in the Products.
7. WARRANTIES
a. 3NO warrants that it is the exclusive owner of, and has full power and
right to license the ISSANNI 1000 and to perform all other terms of this
Agreement.
b. 3NO warrants and represents that it has full power and right to grant a
sublicensable sublicense for the Third Party Software to Larscom under the terms
and conditions of this Agreement.
c. 3NO warrants (i) that the ISSANNI 1000 and all information and materials
furnished hereunder shall be free from defects in materials, design and
workmanship and (ii) that the ISSANNI 1000 will perform in accordance with
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CONFIDENTIAL TREATMENT
the functional specifications as set forth in the Statement of Work attached
hereto as Exhibit A ("Functional Specifications") for a period of three (3)
years starting as of the Effective Date. Provided that 3NO receives notification
within the applicable warranty period that the ISSANNI 1000 does not so conform,
then 3NO, at its own cost will make such modifications as are necessary to make
the ISSANNI 1000 conform to the Functional Specifications.
d. 3NO warrants to Larscom that the Software does not contain (i) software
traps, viruses, worms, trap doors, back doors or other means of function that
will interfere with or adversely affect Larscom's use of the Software in
connection with the Products or which will damage or destroy data or other
property of Larscom; or (ii) any master key access, ID, password feature or
other means of access.
e. 3NO warrants to Larscom that the Software shall be Year 2000-compliant.
By way of example, products, programs, files, databases, user interfaces and
processes shall have or produce no operational, logical or arithmetic
inconsistencies when dealing with dates beyond 1999. The transition across
century boundaries must be seamless, requiring no manual intervention. Leap year
and century calculations must be per ISO 8601. The required date range is from
the year 1 to the year 9999.
f. In addition to the foregoing, to the extent allowable in existing third
party contracts, 3NO agrees to assign, and hereby does assign, to Larscom any
other warranties and all benefits thereof as 3NO or any of its subcontractors or
affiliates may receive from third party suppliers. Any such assignment shall not
relieve 3NO of any of its responsibilities under this Agreement. 3NO shall
notify Larscom of each warranty and, upon receipt of such warranty, shall
deliver to Larscom any documents issued by the warrantor evidencing such
warranty.
g. 3NO represents that it has not assigned, transferred, licensed, pledged
or otherwise encumbered the ISSANNI 1000, or any underlying technology or
intellectual property rights thereto in a manner inconsistent with the terms of
this Agreement.
h. 3NO represents that it is not aware of any actual violation or potential
violation, infringement or misappropriation of any third party's rights,
including without limitation, patent, copyright, trademark and trade secret
rights (or any claim or potential claim thereof) by the ISSANNI 1000.
i. Each party represents that entering into or performing under this
Agreement will not violate any right of or breach any obligation to any third
party under any agreement or arrangement between the representing party and such
third party.
j. EXCEPT AS SET FORTH HEREIN, 3NO SYSTEMS MAKES NO PERFORMANCE
REPRESENTATIONS, WARRANTIES OR GUARANTIES, EITHER EXPRESS OR IMPLIED, ORAL OR
WRITTEN, WITH RESPECT TO THE TECHNOLOGY OR THE SOFTWARE, OR ANY SERVICES COVERED
BY OR FURNISHED PURSUANT TO THIS AGREEMENT, INCLUDING BUT NOT LIMITED TO,
WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, OR ARISING FROM
ANY COURSE OF PERFORMANCE, COURSE OF DEALING, OR USAGE OF TRADE.
8. INDEMNIFICATION/LIMITATION OF LIABILITY.
a. Each party shall, at its own expense, indemnify and hold the other
harmless from any loss, damage, liability or expense, on account of damage to
property and injuries, including death, to all persons, arising from any
occurrence caused by any act or omission of the indemnifying party related to
the performance of this Agreement. The indemnifying party shall defend any suit
or dispose of any claim or other proceedings brought against said indemnities on
account of such damage or injury, and shall pay all expenses, including
attorney's fees, and satisfy all judgments which may be incurred by or rendered
against said indemnities.
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CONFIDENTIAL TREATMENT
b. EXCEPT FOR A BREACH OF SECTION 9, IN NO EVENT SHALL EITHER PARTY BE
LIABLE TO THE OTHER, OR TO ANY THIRD PARTY CLAIMING THROUGH EITHER PARTY HERETO,
FOR INDIRECT, SPECIAL, EXEMPLARY, INCIDENTAL OR CONSEQUENTIAL LOSS OR DAMAGE,
INCLUDING BUT NOT LIMITED TO, LOST PROFITS, WHETHER ARISING OUT OF CONTRACT,
TORT, STRICT LIABILITY OR OTHERWISE, RESULTING FROM OR RELATING TO THIS
AGREEMENT (WHETHER OR NOT SUCH PARTY KNEW OR SHOULD HAVE KNOWN OF THE
POSSIBILITY OF ANY SUCH DAMAGES).
9. CONFIDENTIALITY.
Each party agrees, in the event it receives Confidential Information of
the other, to use such Confidential Information only for the purposes for which
it was disclosed to the party, to exercise reasonable care to protect and hold
such Confidential Information in confidence and to prevent its disclosure to
third parties, except as permitted under this Agreement. Except as otherwise
provided, all such Confidential Information will be returned to the disclosing
party upon termination of this Agreement. Neither party shall be required to
protect or hold in confidence any information received by it which:
(i) is or becomes available to the public or to the industry without
the fault of the recipient;
(ii) was rightfully in the possession of recipient before being
provided to the recipient by the other party;
(iii) is independently developed by the recipient;
(iv) is required to be disclosed by court order, or other legal
requirement, provided, however, that the recipient provides sufficient notice to
the other party, if possible, to permit such other party an opportunity to
obtain sufficient protective measures with regard to the information; or
(v) is subsequently received by the recipient without obligation of
confidentiality from a third party, who the recipient had no reason to believe
was not legitimately authorized to provide it with such information;
10. TRADEMARKS.
a. Larscom shall designate and implement its own Trademark for the
Products.
b. Larscom agrees to credit its use of the ISSANNI 1000 by use of a 3NO
Trademark on the Products. 3NO will provide the artwork to be utilized by
Larscom and Larscom, in its sole discretion, shall determine the size and
placement of such Trademark. The artwork shall be compatible with the Products
and Larscom's Trademarks. In addition, Larscom agrees to reasonably credit 3NO
on the packaging, Larscom's User Documentation, advertising and promotional
literature relating to the Products. Any additional desired use by Larscom of
3NO's Trademarks (including, without limitation, in advertising or marketing
materials) shall be submitted to 3NO for written approval prior to such use.
11. AUDIT.
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CONFIDENTIAL TREATMENT
a. Larscom shall keep full, clear and accurate books and records with
respect to its Net Unit Sales and Net Sales subject to royalties hereunder. Such
books and records shall be kept at Larscom's principal place of business and
made in a manner such that the royalty reports made pursuant to Section 0, can
be verified.
b. During the term of this Agreement and for two (2) years thereafter, 3NO
or its authorized agent, shall have the right to examine such books and records
upon reasonable notice during normal business hours, but not more than twice per
year. In case of any dispute as to the sufficiency or accuracy of such books and
records, 3NO may have an independent auditor examine and certify such records.
Such inspections shall be at the expense of 3NO, unless a variation or error to
the prejudice of 3NO exceeding five percent (5%) is discovered. In such event,
Larscom shall be responsible for all costs relating to the audit. Larscom shall
pay any deficiency discovered by 3NO, together with interest thereon at the then
current prime rate, within fifteen (15) days from the date on which notice of
such deficiency is given.
12. TERM AND TERMINATION.
a. Unless earlier terminated in accordance with the provisions hereof, the
term of this Agreement shall be five (5) years from the Effective Date. Subject
to the terms hereof, either party may notify the other in writing ninety (90)
days prior to the end of any term of its intention to renew, the Agreement and
it shall be renewed for an additional term of twelve (12) months each.
b. This Agreement may be terminated by mutual agreement of the parties or
as follows:
(i) By either party, upon material breach or default of the terms
hereof by the other and such breach or default is not cured by the defaulting
party within thirty (30) days from the date of written notice of such breach or
default by the non-defaulting party. The cure period may be extended by
agreement of the parties.
(ii) By either party immediately upon written notice in the event the
other party, (a) admits its inability to pay its debts after they become due or
is in liquidation, (b) involuntarily, has instituted against it any proceeding
in bankruptcy or any other insolvency or reorganization proceeding, or (c)
voluntarily institutes any proceeding in bankruptcy or any other insolvency or
reorganization proceeding.
c. The effect of termination:
(i) Upon termination of this Agreement for any reason, the following
sections shall survive: 2, 3, 6, 7, 8, 9, 11, 12, 13 and 14.
(ii) No termination of this Agreement shall have any effect on Products
for which royalty payments have been made.
(iii) Upon termination of this Agreement by 3NO for Larscom's breach,
insolvency, or bankruptcy, Larscom shall cease all use of the Software and all
Confidential Information disclosed by 3NO to Larscom (collectively, "3NO
Materials"). Larscom shall further return all 3NO Materials (including all
copies thereof in whatever form) in Larscom's possession to 3NO, or, upon
notification by 3NO that such return is unnecessary, destroy all 3NO Materials.
Notwithstanding the foregoing, upon termination of this Agreement, Larscom shall
be entitled to keep and use one copy of 3NO Materials to provide support to
Customers in possession of Products prior to or on the effective date of
termination. All outstanding payments shall be due and payable within thirty
(30) days of such termination.
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CONFIDENTIAL TREATMENT
(iv) Upon termination of this Agreement by mutual consent of the
parties, 3NO shall continue to provide support for so long as Larscom is
obligated to provide support to its Customers pursuant to existing agreements
between such Customers and Larscom, but in no event shall 3NO's obligation to
provide support continue for more than one (1) after the expiration of any
Larscom warranty.
(v) In the event that this Agreement is terminated by Larscom due to
3NO's insolvency, liquidation, or bankruptcy, or in the event 3NO, or any
successor in interest attempts to terminate this Agreement, Larscom shall be
entitled to receive the Source Code from escrow pursuant to the Escrow
Agreement. Notwithstanding anything else contained herein: (a) the Source Code
shall be considered 3NO's Confidential Information; (b) Larscom shall be
entitled to use the Source Code for any purpose in connection with the Products
and to support Customers that are in possession of Products and (c) the Source
Code is provided to Larscom "AS IS," WITHOUT ANY WARRANTY OF ANY KIND INCLUDING
WITHOUT LIMITATION, THE IMPLIED WARRANTY OF MERCHANTABILITY, FITNESS FOR A
PARTICULAR PURPOSE OR NON-INFRINGEMENT.
(vi) In the event of any termination by Larscom for 3NO's breach, prior
to Larscom acceptance of the Software, Hardware and related information and
materials ("Acceptance"), 3NO shall immediately refund the all amounts paid by
Larscom hereunder. In the event of any termination by Larscom for breach
following Acceptance, Larscom's rights hereunder shall continue, and such
termination shall not prejudice any Larscom claim or cause of action against
3NO. In the event of any termination by Larscom for failure of 3NO to fulfill
the requirements described in Xxxxxxx 0 xxxxx, 0XX xxxxx xx in material default
and Larscom shall be entitled to withhold all payments until such maintenance or
improvements are resumed.
13. INDEMNIFICATION/INFRINGEMENT.
a. In the event that any lawsuit is brought against Larscom based on a
claim that the Intellectual Property or Hardware, or any modification thereto
approved by 3NO, infringes any patent, copyright, or trade secret, 3NO agrees
that it will (i) defend such claim at its expense, as long as it is notified in
writing, within a reasonable period of time, and is given whatever information
is available to defend the claim; (ii) indemnify and hold Larscom harmless from
and against all damages, costs and expenses, including reasonable attorneys'
fees and costs, and (iii) pay all damages and costs awarded against Larscom on
such claim, as well as all reasonable out-of-pocket expenses incurred and paid
by Larscom directly resulting from such claim. 3NO will not be responsible for
any cost or expense related to a compromise of such claim made by Larscom
without 3NO's written consent.
b. In the event the Hardware, or any modification thereto approved by 3NO
is, or in 3NO's opinion is likely to become, the subject of a claim for patent,
copyright, or trade secret infringement, 3NO may at its option and expense (i)
procure for Larscom the right to continue using the same under the terms of this
Agreement, or (ii) to replace or modify the same so that it becomes
non-infringing and substantially equivalent in function.
THE FOREGOING IS 3NO SYSTEMS' EXCLUSIVE OBLIGATION WITH RESPECT TO INFRINGEMENT
OF INTELLECTUAL PROPERTY RIGHTS.
c. 3NO shall not be liable to Larscom for any claim of infringement based
upon or resulting from modifications to the Hardware that it has not approved or
which results from combinations of the Hardware with Larscom or third party
software (specifically excluding Third Party Software) or Products, without
which combination(s) such claim would not have arisen.
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CONFIDENTIAL TREATMENT
14. GENERAL PROVISIONS.
a. ASSIGNMENT/SUCCESSORS. Neither party may sell, assign, pledge or
transfer this Agreement (including by operation of law) or any of its rights or
obligations hereunder without the express written consent of the other party,
which consent shall not be unreasonably withheld. This Agreement shall be
binding upon and inure to the benefit of the successors and permitted assigns of
the parties hereto. Larscom shall not sublicense any of its rights or
obligations hereunder without the prior written consent of 3NO. Notwithstanding
the foregoing, Larscom may sublicense the Intellectual Property, the ISSANNI
1000 and any modifications thereto to Customers.
b. FORCE MAJEURE. Neither party shall be liable for any failure to perform
or observe any of its obligations under this Agreement for as long as, and to
the extent that, such performance is prevented by any circumstances not within
the reasonable control of the party concerned. The party so prevented from
performing shall promptly give notice of such delay and the anticipated length
of its duration to the other party.
c. WAIVER. The failure of a party to insist upon strict adherence to any
term of this Agreement, on any occasion, shall not be considered a waiver or
deprive that party of the right thereafter to insist upon strict adherence to
that term, or any other term, of this Agreement. Any waiver must be in writing.
d. NOTICE. Any notice, or other communication under this Agreement shall be
in writing and shall be considered "given" five (5) days after mailing by
registered mail, return-receipt requested, to the parties at the addresses first
specified above, or at such other addresses as a party may specify by written
notice to the other. The mailing address may be changed at any time upon written
notice by the moving party.
e. INDEPENDENT CONTRACTORS. Larscom and 3NO are independent contractor
under this Agreement, and nothing herein shall be construed to create a
partnership, joint venture or agency relationship between the parties. Neither
Larscom nor 3NO shall have the authority to enter into agreements of any kind on
behalf of the other or otherwise to bind or obligate the other to any third
party in any manner whatsoever.
f. WARRANT/TERM SHEET. This Agreement is conditioned upon the execution of
a Warrant Agreement in the form attached hereto as Exhibit D.
g. SURVIVAL. The provisions of this Agreement that by their sense and
context are intended to survive the termination of this Agreement shall so
survive.
h. GOVERNING LAW. This Agreement shall be governed by and construed under
the laws of the State of California, without regard to its principles of
conflict of law.
28
CONFIDENTIAL TREATMENT
i. ARBITRATION. In the event of any dispute or disagreement under this
Agreement, such dispute or disagreement shall be submitted to arbitration in San
Francisco, California under the rules of the American Arbitration Association.
Any award or decision made in such arbitration process shall be final, binding
upon the parties and enforceable through application to any court of competent
jurisdiction. Each party shall bear its own costs in connection with such
proceeding, except that the prevailing party in any arbitration shall be
reimbursed by the other party for any reasonable expenses, including legal fees.
No arbitration award shall include punitive damages. Notwithstanding the
foregoing, the parties may seek equitable relief in any court of competent
jurisdiction.
j. SEVERABILITY. The illegality or unenforceability of the whole or any
part of the provisions of this Agreement will not affect the continued operation
of the remaining provisions.
k. FOREIGN CORRUPT PRACTICES ACT. Both parties hereby affirm that no
principal, officer, or employee or any of its affiliates is a public official of
any government or territory, and that no principal, officer, or employee or any
of its affiliates is a family member of any public official of any government or
territory or the United States of America. Accordingly, both parties shall
comply with the Foreign Corrupt Practices Act of 1977 which prohibits corrupt
payments to government officials or members of a political party in order to
obtain or maintain business. The Foreign Corrupt Practices Act specifically
prohibits the payment or offer of payment of anything of value to assist in
obtaining or retaining business.
l. EXPORT CONTROL. The parties acknowledge that the manufacture and sale of
the Products is subject to the export control laws of the United States of
America, including the U.S. Bureau of Export Administration regulations, as
amended, and hereby agree to obey any and all such laws. Larscom shall not
export or transmit, directly or indirectly, the Software or any technical data
received from 3NO, not the direct product thereof, outside of the United States
without prior authorization of the U.S. Government if such authorization is
required. Larscom shall obtain all licenses, permits and approvals required by
any government. Larscom agrees to comply with all export laws, rules, policies,
procedures, restrictions and regulations of the Department of Commerce or other
United States or foreign agency or authority, and not to export, or allow the
export or re-export of any goods in violation of any such restrictions, laws or
regulations. Larscom will indemnify and hold harmless 3NO for any violation or
alleged violation by Xxxxxx of such laws, rules, policies, procedures,
restrictions or regulations.
m. COMPLIANCE WITH LAWS AND REGULATIONS. The parties shall comply with all
federal and state laws and regulations relating to their respective duties,
obligations, and performance under this Agreement and shall procure all licenses
and pay all fees, taxes and other charges required thereby.
n. ENTIRE AGREEMENT. This Agreement sets forth the entire understanding
between the parties concerning the subject matter hereof and incorporates all
present and prior negotiations and understandings between the parties. No
alteration, amendment, change or additions to this Agreement shall be binding
upon any party unless in writing and signed by the party to be charged.
o. OPPORTUNITY TO CONSULT COUNSEL. The parties hereto each hereby affirm
and acknowledge that they have read this Agreement, that they know and
understand its terms, and have signed it voluntarily and on the advice of
counsel. The parties have had a full and unhindered opportunity to consult with
their attorneys, accountants, financial advisors and such other consultants as
they may have desired prior to executing this Agreement
29
CONFIDENTIAL TREATMENT
THE UNDERSIGNED BY THEIR AUTHORIZED AGENTS HAVE EXECUTED THIS AGREEMENT AS OF
THE DATE FIRST ABOVE WRITTEN.
3NO SYSTEMS INC. LARSCOM INCORPORATED
By: By:
------------------------ ---------------------
Name Name
---------------------- -------------------
Title: Title:
----------------------- --------------------
30
CONFIDENTIAL TREATMENT
Exhibit A
Statement of Work
WORK PRODUCTS DUE TO LARSCOM:
System Specification Document - This document should provide detailed
list of features, functions and
performance ranges that are the design
and acceptance criteria for the Issani
1000.
High Level Design Documentation - A high level design that shows the
process flow and data flow through the
Issani 1000.
Detailed Functional Specification - This document should contain block diagrams,
module definition and show the interrelation
between code modules. Any hardware
dependencies in terms of specific
drivers should be identified in this
document.
Source Code - Demonstration of fully documented code
that demonstrates that it is a
functional decomposition of the High
Level Design Document and the Detailed
Design Document.
Designer Test Documentation - This document should show a clear plan
to test the features, functions and
performance criteria specified in the
System Specification Document.
Designer Test Results - This document should contain the results
of the Designer Tests.
Operations Manual- This document should contain
instructions on the installation,
operation and maintenance of the Issani
1000
Hardware Documentation- A hardware Xxxx of Materials must be
(completed) provided
31
CONFIDENTIAL TREATMENT
PRODUCT ACCEPTANCE CRITERIA
IN ADDITION TO PROVIDING ALL OF THE DOCUMENTATION MENTION IN THE STATEMENT OF
WORK, THE ISSANI 1000 PRODUCT MUST PROVIDE ALL OF THE FUNCTIONS AND FEATURES
LISTED BELOW UNDER THE HEADING SPECIFICATIONS AND MEET OR EXCEED THE PERFORMANCE
CRITERIA LIST BELOW UNDER THE HEADING PERFORMANCE CRITERIA
SPECIFICATIONS
SOFTWARE
-----------------------------------------------------------------------------------------------------------
LAN Protocols IP, PPP, Ethernet
-----------------------------------------------------------------------------------------------------------
WAN Protocols IP over ATM PVC, IP over Ethernet
-----------------------------------------------------------------------------------------------------------
Encapsulations Ethernet, RFC 2516 PPP
over Ethernet, RFC 1483
(Bridged and Routed), XXX
0000 PPP over ATM
-----------------------------------------------------------------------------------------------------------
Packet Forwarding Routed, Bridged, Tunneled
-----------------------------------------------------------------------------------------------------------
Routing Protocols Static, RIP V1 and 2, OSPF (RFC 1583)
-----------------------------------------------------------------------------------------------------------
Subscriber Awareness Name, Session, IP, MAC Address, ATM PVC
-----------------------------------------------------------------------------------------------------------
Address Management DHCP, DNS
-----------------------------------------------------------------------------------------------------------
Bandwidth Management Rate Reservation, Fair Rate Enforcement
-----------------------------------------------------------------------------------------------------------
VPN PPTP,L2TP
-----------------------------------------------------------------------------------------------------------
Security PAP,CHAP,RADIUS, LDAP, packet filtering
-----------------------------------------------------------------------------------------------------------
Accounting RADIUS, SNMP on per port, per service, per
subscriber
-----------------------------------------------------------------------------------------------------------
Network Management Java, SNMP, command line
-----------------------------------------------------------------------------------------------------------
Advanced Features Network Address Translation (NAT),Firewall, IP
Packet Filtering
-----------------------------------------------------------------------------------------------------------
INTERFACES
-----------------------------------------------------------------------------------------------------------
10/100 Base-T 1 port Autosensing 10/100
-----------------------------------------------------------------------------------------------------------
ATM OC3-c 1 port Single Xxxx
XX, Xxxxxxxxx XX, XX
(0000 PVCs) (Support for
***** concurrent
sessions)
-----------------------------------------------------------------------------------------------------------
ATM DS3 1 port 75 ohm BNC coax (4096 PVCs) (Support for
***** concurrent sessions)
-----------------------------------------------------------------------------------------------------------
ATM T1 IMA 1-4 RJ-48 T1/E1 ports
-----------------------------------------------------------------------------------------------------------
PERFORMANCE CRITERIA
-----------------------------------------------------------------------------------------------------------
PPP Sessions ***** Concurrent Sessions
-----------------------------------------------------------------------------------------------------------
PACKET PER SECOND THROUGHPUT WITHOUT NAT ***** PPS
-----------------------------------------------------------------------------------------------------------
PACKET PER SECOND THROUGHPUT WITH NAT ***** PPS
-----------------------------------------------------------------------------------------------------------
***** CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR THE REDACTED PORTIONS. THE
CONFIDENTIAL REDACTED PORTIONS HAVE BEEN FILED SEPARATELY WITH THE SECURITY AND
EXCHANGE COMMISSION.
32
CONFIDENTIAL TREATMENT
PRODUCT MAINTENANCE AND SUPPORT
Larscom will supply first level support for the Issani 1000. In this role
Larscom will act as the single point of contact. In the end-user documentation a
phone number will be published which Larscom or one of its service delegates
will answer. The first level support will work with customers to trouble shoot
installation and basic operational issues. The first level support team will be
trained to the level that they can trouble shoot problems that can classified as
problems that could be solved by a person trained to operate the unit based on
the commands that are documented in the user manual. If the first level support
team is not able to resolve the problem based on the criteria define above, the
customer call will be escalated to the second tier support team, which is to be
staffed by 3no. Second tier support must be available on a seven day a week
basis, twenty-four (24) hours a day. Severe service effecting problems can also
be escalated based on the following criteria.
----------------------------------------------------------------------------------------
XXXXX 0 XXXXX 0 XXXXX 0
XXXXXXX CSE 3NO PSE XXXXX 0 0XX
XXXXXXX XXX XXXXXXXXXXX
(HARDWARE) ENGINEERING
----------------------------------------------------------------------------------------
PRIORITY RESOLUTION / RESOLUTION / RESOLUTION / RESOLUTION /
ESCALATION ESCALATION ESCALATION ESCALATION
----------------------------------------------------------------------------------------
1 2 Hours 4 Hours 4 Hours 6 Hours
----------------------------------------------------------------------------------------
2 4 Hours 8 Hours 8 Hours 24 Hours
----------------------------------------------------------------------------------------
3 4 Hours 6 Hours 6 Hours 24 Hours
----------------------------------------------------------------------------------------
4 8 Hours N/A N/A Product
Dependant
Schedule
----------------------------------------------------------------------------------------
PRIORITIES DEFINED:
PRIORITY 1: The customer's network is non-operational due to failure of
our product.
PRIORITY 2: The customer's network has an intermittent problem that
impairs proper operation.
PRIORITY 3: The customer's installing our product with-in the network and
requires assistance
PRIORITY 4: The customer's inquiring for general information about
product or requests for enhancements to a product.
LEVELS DEFINED:
LEVEL 1: CSE (Customer Service Engineer) is responsible for working
with the customer and / or the on-site technician to determine
if the problem can be rectified by telephone and or escalating
the problem to Product Support Engineering.
LEVEL 2: PSE (Product Support Engineer) is responsible for working with
CSE and customer in order to rectify the problem, determine if
a dispatch is necessary and for escalation to the Manager of
Technical Support.
33
CONFIDENTIAL TREATMENT
LEVEL 3: Manager of Technical Support is responsible for determining
the level of involvement from the home office support group or
from service partners, and for escalation to the Director of
Customer Service and Engineering (as necessary).
LEVEL 4: Senior Director of Customer Service is responsible for
determining the severity of the problem with input from the
Manager of Technical Support, determining a corrective action
plan, and escalating the problem to the President's staff.
Issues that are determined to be hardware related and requiring replacement will
be turned back to the Larscom Customer Service Organization for resolution.
Problem Tracking - Larscom has a problem tracking system in place.
3no will need to be able to receive problem
report tracking numbers and track progress against
these numbers, updates to Larscom will be made on a
daily basis, so that customers will be able to call
back and determine status and resolution forecast for
their problem reports.
34
CONFIDENTIAL TREATMENT
Exhibit B
SUMMARY OF DRAFT TERMS
3NO SYSTEMS, INC.
AUGUST __, 2000
This memorandum summarizes the principal terms of the Series A-round strategic
financing of 3NO Systems, Inc. ("Company"), by Larscom Incorporated (the
"Investor"). The Company was incorporated in New Jersey on April 6, 1999.
KEY PROVISIONS
INVESTOR Larscom Incorporated
SECURITY Series A Convertible Preferred Stock of 3NO Systems, Inc.
("Series A Preferred Stock").
PRICE PER SHARE ***** ("Original Issue Price").
AGGREGATE PROCEEDS *****
EXPECTED CLOSING DATE *****
TERMS OF SERIES A PREFERRED STOCK
DIVIDEND PROVISIONS Annual ***** dividend on the
Series A Preferred Stock.
Dividends payable if, as and
when determined by the Board of
Directors ("Board"). Dividends
are *****
For any other dividends or
distributions, Series A Preferred
Stock participates with Common
Stock on an as-converted basis.
LIQUIDATION PREFERENCE First pay original purchase price
plus accrued dividends on each share
of Series A Preferred Stock, balance of
proceeds paid pro-rata to Series
A Preferred Stock and Common
Stock on an as-converted to
Common Stock basis.
A consolidation or merger of the
Company or sale of all or
substantially all of its assets
shall be deemed to be a
liquidation or winding up for
purposes of the liquidation
preference.
CONVERSION Convertible at any time at option
of holder into one share of
Common Stock (subject to
antidilution adjustments).
***** CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED FOR THE REDACTED
PORTIONS. THE CONFIDENTIAL
REDACTED PORTIONS HAVE BEEN FILED
SEPARATELY WITH THE SECURITY AND
EXCHANGE COMMISSION.
35
CONFIDENTIAL TREATMENT
AUTOMATIC CONVERSION The Series A Preferred Stock
shall be automatically converted
into Common Stock, at the then
applicable conversion price, (i)
in the event of an underwritten
public offering of shares of the
Common at a public offering
price per share that is not less
than ***** times the Original
Issue Price and an aggregate
offering price of *****
("Qualifying IPO") or (ii) on
the date upon which the Company
obtains the vote or consent of
at least ***** of the then
outstanding shares of Series A
Preferred Stock to such
conversion.
ANTIDILUTION PROVISION The Series A Preferred
Stock shall be entitled to
proportional antidilution
protection for stock splits,
stock dividends, etc. In
addition, the Investor shall
have standard weighted average
anti-dilution rights in the
event that the Company issues
additional equity securities
(other than the reserved
employee shares under the
Employee Pool) at a purchase
price less than the applicable
conversion price.
VOTING AND PROTECTIVE PROVISIONS Series A Preferred votes on an
as-converted to Common Stock
basis, but also has a series
vote, by ***** majority, on:
1) Altering, changing or
amending the preferences,
privileges or rights of Series A
Preferred Stock;
2) Authorizing, creating and/or
issuing a senior or PARI PASSU
class or series of equity
securities, other than an
issuance pursuant to the existing
Employee Pool;
3) Increasing or decreasing the
authorized number of directors
constituting the Board of
Directors;
4) Any consolidation, sale or
merger of the Company or other
transaction in which control of
the Company is transferred;
5) Amending or waiving any
provision of the Company's
Certificate of Incorporation or
Bylaws;
6) Redeeming, repurchasing or
declaring a dividend with
regard to any security of the
Company.
***** CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED FOR THE REDACTED
PORTIONS. THE CONFIDENTIAL
REDACTED PORTIONS HAVE BEEN FILED
SEPARATELY WITH THE SECURITY AND
EXCHANGE COMMISSION.
36
CONFIDENTIAL TREATMENT
TERMS OF INVESTOR RIGHTS AGREEMENT
RIGHT OF FIRST OFFER ON The holders of Series A
SUBSEQUENT ISSUANCES Preferred Stock shall have the
right in the event the Company
proposes to offer equity
securities to any person (other
than the securities issued
pursuant to employee benefit
plans or acquisitions, in each
case as approved by the Board of
Directors, including the
director elected by holders of
the Series A Preferred Stock) to
purchase on a pro rata basis all
or any portion of such shares.
If the Investor does not
purchase all of the securities,
that portion that is not
purchased may be offered to
other parties on terms no less
favorable to the Company for a
period of sixty (60) days.
This right shall not apply to the
issuance by the Company of up to
***** shares of its Common Stock
to employees, officers, or
directors of, or advisors or
consultants to, the Company
pursuant to its stock purchase or
option plans (the "Employee
Pool") or for the exercise of
warrants issued to lenders and
other creditors approved by the
Board of Directors. It shall also
not apply to Common Stock issued
in connection with strategic
alliances or other partnering
arrangements approved by the
Board of Directors or Common
Stock issued upon conversion of
Series A Preferred Stock.
This right shall terminate
immediately prior to (i) the
closing of a Qualifying IPO or
(ii) the closing of any merger or
consolidation of the Company.
REGISTRATION RIGHTS:
DEMAND RIGHTS Beginning earlier of ***** from
the purchase of the Series A
Preferred Stock or ***** after
initial registration, one demand
registration upon initiation of
holders of at least *** of the
outstanding shares of Series A
Preferred as a class, including
Common Stock issued on
conversion of the Series A
Preferred Stock ("Registrable
Securities"), with minimum
aggregate offering price to the
public of not less than *****.
The Company will use its best
efforts to cause such shares to
be registered.
***** CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED FOR THE REDACTED
PORTIONS. THE CONFIDENTIAL
REDACTED PORTIONS HAVE BEEN FILED
SEPARATELY WITH THE SECURITY AND
EXCHANGE COMMISSION.
37
CONFIDENTIAL TREATMENT
COMPANY REGISTRATION Unlimited "piggy-back"
registration rights subject to
pro rata cutback at the
underwriters' discretion. Full
cutback on IPO, ***** minimum
inclusion thereafter. If the
Series A Preferred Stock holders
are so limited, however, no
party shall sell shares in such
registration other than the
Company or the Series A
Preferred Stock holders, if any,
invoking the demand
registration.
No stockholder of the Company
shall be granted piggyback
registration rights superior to
those of the Series A Preferred
Stock without the consent of the
holders of at least fifty-one
percent of the Registrable
Securities.
S-3 RIGHTS Up to ***** demand registrations on
Form S-3 per year; minimum offering
size of $*****.
TERMINATION OF REGISTRATION RIGHTS Registration Rights terminate (i)
***** years after initial public
offering; or (ii) when all shares
held by an investor can be sold
under Rule 144 within a ninety
(90) day period and such investor
then holds less than 1% of the
outstanding capital stock of the
Company.
No future registration rights may
be granted without consent of a
majority of Series A Preferred
Stock holding registration rights
if such rights are superior to
those of the Series A Preferred
Stock.
EXPENSES The Company shall bear
registration expenses (exclusive
of underwriting discounts and
commissions) of all such demand,
piggy-back, and S-3 registrations
(including the expense of one
special counsel of the selling
shareholders).
TRANSFER OF RIGHTS The registration rights
may be transferred to any
transferee who acquires at least
***** shares of Registrable
Securities; provided the Company
is given written notice thereof.
STANDOFF PROVISION No Series A Preferred holder shall
sell shares within 180 days of the
effective date of the Company's initial
public offering if all officers and
directors are similarly bound.
***** CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED FOR THE REDACTED
PORTIONS. THE CONFIDENTIAL
REDACTED PORTIONS HAVE BEEN FILED
SEPARATELY WITH THE SECURITY AND
EXCHANGE COMMISSION.
38
CONFIDENTIAL TREATMENT
BOARD REPRESENTATION AND MEETINGS The authorized number of
directors shall initially be
***** The Series A Preferred
Stock shall elect *****, the
Common Stock (voting separately
as a class) shall elect *****
and the remaining ***** shall be
elected by all shares having
voting rights. The Board shall
meet at least six times per
year. Effective upon the closing
of the Series A Preferred Stock
financing (the "Closing"), the
members of the Board shall be
*****
INSPECTION AND INFORMATION RIGHTS For so long as the Investor holds at
least ***** shares of Series A
Preferred Stock, the Investor
shall have the right to inspect
the Company's premises and books
at times convenient to both
parties. The Investor shall have
the right to receive unaudited
***** financial statements (including
income statements, balance
sheets, cash flow statements, and
summaries of bookings and
backlog) and management
commentary within ***** days of
the close of each quarter, and
audited annual financial
statements within *****
days of the close of the fiscal
year, in each case showing
changes from the applicable
budget for the corresponding
period. Prior to the beginning of
each fiscal year (and prior to
the initial Closing Date of this
investment), the Company shall
prepare and forward to the
Investor detailed monthly
financial projections for the
year. Rights end upon
consummation of Qualifying IPO.
TERMS OF PREFERRED STOCK PURCHASE AGREEMENT
REPRESENTATIONS AND WARRANTIES The investment shall be made
pursuant to a Stock Purchase
Agreement reasonably acceptable
to the Company and the Investor,
which shall contain, among other
things, appropriate
representations, warranties and
covenants of the Company
reflecting the provisions set
forth herein and other standard
provisions, and appropriate
conditions to closing including
a customary legal opinion of
Company counsel regarding the
financing.
EXPENSES The Company and the Investor
shall each bear their own legal
and other expenses with respect
to the transaction except that,
assuming a successful completion
of the transaction, the Company
shall pay the legal fees and
expenses of Xxxxxxx, Xxxxxxx &
Xxxxxxxx LLP, counsel to the
Investor, up to a maximum of
$*****. Every effort will be made
to minimize these expenses.
***** CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED FOR THE REDACTED
PORTIONS. THE CONFIDENTIAL
REDACTED PORTIONS HAVE BEEN FILED
SEPARATELY WITH THE SECURITY AND
EXCHANGE COMMISSION.
39
CONFIDENTIAL TREATMENT
FOUNDERS AND EMPLOYEE AGREEMENTS
STOCK VESTING All stock and stock equivalents
issued after the Closing to
employees, directors and
consultants shall be subject to
vesting as follows: 25% to vest
at the end of the first year
following such issuance, with
the remaining 75% to vest
monthly over the next three
years. The repurchase option
shall provide that upon
termination of the employment of
the shareholder, with or without
cause, the Company or its
assignee (to the extent
permissible under applicable
securities law qualification)
retains the option to repurchase
at cost any unvested shares held
by such shareholder.
RESTRICTIONS ON COMMON STOCK TRANSFERS No transfers allowed prior to vesting.
Right of first refusal on vested
shares until initial public
offering.
MARKET STANDOFF Holders of Common Stock and
options must, at the request of
the Company or an underwriter
involved in the Company's
initial public offering, agree
not to sell or otherwise
transfer any securities of the
Company during a period of up to
180 days following the effective
date of the registration of such
initial public offering.
PROPRIETARY INFORMATION AND INVENTIONS Each officer, employee and
AGREEMENT consultant of the Company shall
enter into an acceptable
proprietary information and
inventions agreement.
KEY-MAN INSURANCE As soon as reasonably possible after
the Closing, the Company shall procure
a key-man life insurance policy for its CEO
in the amount of $*****, naming
the Company as beneficiary.
CO-SALE RIGHTS Each holder of the Series A Preferred
Stock shall have the right to participate
on a pro-rata basis in transfers of
stock for value by any Founder (*****).
***** CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED FOR THE REDACTED
PORTIONS. THE CONFIDENTIAL
REDACTED PORTIONS HAVE BEEN FILED
SEPARATELY WITH THE SECURITY AND
EXCHANGE COMMISSION.
40
CONFIDENTIAL TREATMENT
OTHER PROVISIONS
FINDERS The Company and the Investor
shall represent and warrant that
it has no obligation to pay any
finder's fee and shall indemnify
the other parties to this
transaction for any breach
thereof.
CLOSING CONDITIONS Closing subject to negotiation of
definitive legal documents and completion
of legal and financial due diligence by
Investor.
CAPITALIZATION Upon the Closing of this financing there
shall be (i) ***** shares of issued and
outstanding Common Stock held by
the founders and (ii) *****
shares of Common Stock reserved
for issuance pursuant to
outstanding options or reserved
for future issuance to key
employees.
***** CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED FOR THE REDACTED
PORTIONS. THE CONFIDENTIAL
REDACTED PORTIONS HAVE BEEN FILED
SEPARATELY WITH THE SECURITY AND
EXCHANGE COMMISSION.
41
CONFIDENTIAL TREATMENT
EXHIBIT C
ESCROW AGREEMENT
This agreement is entered into by and among Larscom Incorporated,
("LARSCOM"), ________________________________, ("ESCROW AGENT"), and 3NO
Systems, Inc. ("3NO").
WHEREAS, Larscom has licensed, by means of an agreement of even date
("AGREEMENT"), rights to the Hardware and Software; and
WHEREAS, Larscom requires access to the Hardware and Software for the
conduct of its business under certain limited circumstances.
NOW THEREFORE, the parties hereto agree as follows:
1. Escrow.
Simultaneously with the execution of this agreement, 3NO shall promptly deliver
to the Escrow Agent a true and correct copy of the Source Code (as such term is
defined in the Agreement) together with related documentation, and, as
developed, all new releases, enhancements, modifications and corrections thereof
or thereto that are the subject of the Agreement between Larscom and 3NO. The
Escrow Agent shall not be responsible for verifying the contents of the
delivered Source Code and is held harmless by Larscom for any missing or
incomplete items not delivered by 3NO to Escrow Agent. The Escrow Agent shall
hold the Documentation in escrow in a secure environmentally safe, locked
facility which is accessible only to Escrow Agent and shall not release the
Source Code to Larscom unless or until one or more of the following acts occur
(a "DEFAULT"):
a. A material default by 3NO, as described in this License Agreement,
or
b. The insolvency, bankruptcy or dissolution of 3NO, for any reason,
or
c. 3NO has ceased business operations.
2. Procedure.
In the event of a Default, the Escrow Agent shall release the Source Code held
in escrow in accordance with the following procedures.
Within five (5) business days following receipt of written notice from Larscom
of the occurrence of a Default (the "ESCROW NOTICE"), the Escrow Agent shall
give 3NO written notice thereof (the "3NO NOTICE") and shall confirm the giving
of the 3NO Notice in writing to Larscom.
In the event Escrow Agent receives from Larscom within such five (5) business
day period, a written statement withdrawing the Escrow Notice, the Escrow Agent
shall notify 3NO of such withdrawal and this Agreement shall continue in full
force and effect as if the Escrow Notice had not been provided to the Escrow
Agent.
In the event 3NO disputes the existence of a Default, 3NO shall, within five (5)
business days after receipt of the 3NO Notice from the Escrow Agent, give to the
Escrow Agent and Larscom written notice thereof (the "COUNTER-NOTICE"). The
Counter-Notice shall set forth (i) a demand to not provide the escrowed Source
Code to Larscom hereunder, and (ii) a statement setting forth facts supporting
the basis for 3NO's dispute
42
CONFIDENTIAL TREATMENT
If the Counter-Notice is received by the Escrow Agent before the close of
business on the last day of such five (5) day period, the Escrow Agent shall,
within five (5) business days after receipt of the Counter-Notice, give Larscom
written notice thereof and withhold provision of the escrowed Source Code to
Larscom pending receipt of either (i) a certified copy of the award of the
arbitrator pursuant to Section 3 hereof, or (ii) other instructions signed
jointly by authorized officers of Larscom and 3NO. If after giving 3NO Notice,
Escrow Agent does not receive written notice from 3NO or Larscom in accordance
with subsection (B) or (C) of this section 2, the Escrow Agent shall immediately
deliver the escrowed Source Code to Larscom. If Larscom receives the Source
Code, hereunder, it shall only it as necessary and in a manner that is
consistent with the terms of the Agreement.
Notwithstanding any other provisions of this agreement, the Escrow Agent shall
promptly deliver the escrowed Source Code to the party designated in writing
signed jointly by 3NO and Larscom.
3. Arbitration.
In the event the Counter-Notice is given by 3NO, the controversy as to the
existence of a Default shall be settled by arbitration in accordance with the
Commercial Arbitration Rules of the American Arbitration Association. The
hearing shall be held in San Francisco, or such other location as Larscom and
3NO may mutually agree before an arbitrator who was selected by the American
Arbitration Association as being reasonably familiar with telecommunications and
computer industries. In rendering a decision, the arbitrator shall make specific
findings of fact and take into account any applicable judicial precedents and
industry practice in the telecommunications and computer industries. The
decision of the arbitrator shall be binding and conclusive on all parties
involved, to the extent permitted by applicable law, and judgment upon the
decision may be entered in the highest court of any forum, federal or state,
having jurisdiction.
Immediately after receipt of a certified copy of an award from the arbitrator
that finds the existence of a Default, the Escrow Agent shall deliver to Larscom
the escrowed Source Code. In the event the arbitrator finds to the contrary, the
Escrow Agent shall withhold delivery of the escrowed Source Code and this Escrow
Agreement shall continue in full force and effect as if the Escrow Notice had
not been communicated to the Escrow Agent.
All fees charged by the American Arbitration Association and all attorney's fees
and costs shall be paid by the non-prevailing party to the arbitration. However,
each party shall be responsible for payment of all fees and expenses connected
with the presentation of its respective case.
The Escrow Agent shall receive from 3NO the sum of ____________ dollars for
operating the escrow account and the sum of _____________ dollars per annum
thereafter for continuation of same.
4. Governing Law.
This Agreement shall be governed by the laws of the State of California without
regard to conflict of law rules. The successful party in any action brought as a
result of the Agreement shall be entitled to recover from the unsuccessful party
reasonable attorney's fees and costs of court, in addition to any other relief
to which it may be entitled by prosecution or defending such action.
5. Validity.
If any provision herein, or party thereof, is held to be invalid, illegal or
unenforceable, the remainder of the Agreement, or other parts or applications of
such provision shall not be affected thereby.
6. Term.
The initial period of this Agreement is for a period of two (2) years.
Thereafter, this Agreement shall automatically
43
CONFIDENTIAL TREATMENT
renew on a year to year basis unless (a) 3NO and Larscom jointly instruct Escrow
Agent in writing that this Agreement is terminated, (b) this Agreement is
terminated by 3NO for Larscom's default under the Agreement.
Executed ________________, 2000.
LARSCOM INCORPORATED 3NO SYSTEMS INCORPORATED
By: By:
----------------------------------- ------------------------
Xxxxxx Xxxxxxxx, President & CEO
-------------------------------------- ---------------------------------
Name and Title Name and Title
ESCROW AGENT
By:
-------------------------------------------
-------------------------------------------
Name and Title
-------------------------------------------
Address
-------------------------------------------
44
CONFIDENTIAL TREATMENT
EXHIBIT D
STOCK WARRANT
Upon the Effective Date of this [License] Agreement, 3NO Systems, Inc. ("3NO")
shall grant to Larscom, Inc. ("LARSCOM") a warrant (the "WARRANT") to acquire an
amount of shares of 3NO's common stock equal to ***** of 3NO's common stock
outstanding on a fully-diluted basis (including, without limitation, all
securities of 3NO issued, subject to outstanding options, warrants or other
rights to acquire such securities or reserved for issuance by 3NO) immediately
prior to the earlier of (i) the underwritten public offering pursuant to an
effective registration statement under the Securities Act of 1933, as amended,
covering the offer and sale of 3NO's common stock (an "IPO") or (ii) a merger,
consolidation or other reorganization of 3NO with or into any other corporation
or corporations, or a sale of all or substantially all of the assets of 3NO,
unless the stockholders of 3NO immediately prior to such merger, consolidation
or reorganization hold at least 50% of the outstanding voting equity securities
of the surviving corporation in such merger, consolidation, reorganization or
sale of assets (a "LIQUIDITY EVENT") at an exercise price per share equal to
***** of (a) the price at which shares are initially sold to the public in an
IPO, (b) the fair market value of a share of 3NO's common stock determined in
any other Liquidity Event or (c) if no such fair market value is determinable in
the Liquidity Event, the fair value of a share of 3NO's common stock at the
effective time of the Liquidity Event as determined in good faith by the board
of directors of 3NO. The Warrant will be in substantially the form attached to
this letter as Exhibit [X] with an exercise period of the longer of ten (10)
years or three (3) years after a Liquidity Event, will be exercisable at any
time beginning immediately prior to the earlier of a Liquidity Event or the
record date of such Liquidity Event (if exercised prior to such Liquidity Event,
the exercise price shall be based on the exercise price determinable in the
Liquidity Event) and will include registration rights (one (1) demand
registration, unlimited piggyback registrations, and, per year, up to two (2)
S-3 registrations, all of the expenses of each to be paid by 3NO).
NEITHER THIS WARRANT NOR THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT
HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE
SECURITIES LAWS OF ANY STATE. NEITHER THIS WARRANT NOR THE SECURITIES ISSUABLE
UPON EXERCISE OF THIS WARRANT NOR ANY INTEREST OR PARTICIPATION HEREIN OR
THEREIN MAY BE SOLD, OFFERED FOR SALE, ASSIGNED, PLEDGED, HYPOTHECATED,
ENCUMBERED OR IN ANY OTHER MANNER TRANSFERRED OR DISPOSED OF IN THE ABSENCE OF A
REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES UNDER SUCH ACT
AND SUCH LAWS OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED.
***** CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR THE REDACTED PORTIONS. THE
CONFIDENTIAL REDACTED PORTIONS HAVE BEEN FILED SEPARATELY WITH THE SECURITY AND
EXCHANGE COMMISSION.
45
CONFIDENTIAL TREATMENT
No. W-___
WARRANT TO PURCHASE COMMON STOCK
of
3NO SYSTEMS, INC.
This certifies that, for value received, LARSCOM INCORPORATED,
or registered assigns ("Holder"), is entitled, subject to the terms set forth
below, to purchase from 3NO SYSTEMS, INC. (the "Company"), a New Jersey
corporation, an amount of shares of the Company's common stock ("Common Stock")
***** of the capital stock of the Company outstanding on a fully-diluted basis
(including, without limitation, all securities of the Company issued, subject to
then outstanding options, warrants or other rights to acquire such securities or
then reserved for issuance (other than pursuant to Section 8 hereof) by the
Company) immediately prior the Liquidity Event (as defined below) ("Common
Shares"), upon surrender hereof, at the principal office of the Company referred
to below, with the subscription form attached hereto duly executed, and
simultaneous payment therefor in lawful money of the United States or otherwise
as hereinafter provided, at the Exercise Price as set forth in Section 2 below.
The number, character and Exercise Price of such Common Shares are subject to
adjustment as provided below. The term "Warrant" as used herein shall include
this Warrant, and any warrants delivered in substitution or exchange for this
Warrant as provided herein. For purposes of this Warrant, the "Liquidity Event"
shall mean the earlier of (i) the public offering pursuant to an effective
registration statement under the Securities Act of 1933, as amended, covering
the offer and sale of Common Stock (an "IPO") or (ii) a merger, consolidation or
other reorganization of the Company with or into any other corporation or
corporations, or a sale of all or substantially all of the assets of the
Company, unless the stockholders of record of the Company as constituted
immediately prior to such merger, consolidation, reorganization or sale will
hold, immediately after such acquisition or sale (by virtue of securities issued
as consideration for such merger, consolidation, reorganization or sale or
otherwise) at least 50% of the outstanding voting power of the surviving
corporation in such merger, consolidation, reorganization or sale.
1. TERM OF WARRANT. Subject to the terms and conditions set
forth herein, this Warrant shall be exercisable, in whole or in part, during the
term commencing immediately prior to the earlier of a Liquidity Event or the
record date of such Liquidity Event and ending at 5:00 p.m., Pacific Standard
Time, on the later of September __, 2010 or three (3) years after the effective
date of the Liquidity Event (the "Expiration Date"), and shall be void
thereafter.
2. EXERCISE PRICE. The Exercise Price per Common Share at
which this Warrant may be exercised shall be equal to ***** of the Fair Market
Value of such Common Shares. For purposes of this Warrant, the Fair Market Value
of the Common Shares shall mean: (a) the price at which shares of Common Stock
are initially sold to the public in an IPO, (b) the fair market value of a
Common Share determined in any other Liquidity Event or (c) if no such fair
market value is determinable in the Liquidity Event, the fair value of a Common
Share at the effective time of the Liquidity Event as determined in good faith
by the Board of Directors of the Company, as adjusted from time to time pursuant
to Section 9 hereof.
***** CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR THE REDACTED PORTIONS. THE
CONFIDENTIAL REDACTED PORTIONS HAVE BEEN FILED SEPARATELY WITH THE SECURITY AND
EXCHANGE COMMISSION.
46
CONFIDENTIAL TREATMENT
3. EXERCISE OF WARRANT.
(a) The purchase rights represented by this Warrant are
exercisable by the Holder in whole or in part, at any time, or from time to
time, during the term hereof as described in Section 1 above, by the surrender
of this Warrant and the Notice of Exercise annexed hereto duly completed and
executed on behalf of the Holder, at the office of the Company (or such other
office or agency of the Company as it may designate by notice in writing to the
Holder at the address of the Holder appearing on the books of the Company),
upon:
(i) (Cash Exercise) payment in cash, by check or
by wire transfer (to the account designated by the Company on the Account
Schedule attached hereto, as such may be amended from time to time by written
notice delivered by the Company to the Holder) of the purchase price of the
shares to be purchased; or
(ii) (NET ISSUE EXERCISE) election to receive
shares equal to the value of this Warrant (or the portion thereof being
canceled) computed using the following formula:
X = (Y)(A-B)
--------
A
Where: X - The number of Common Shares to be
issued to Holder.
Y - The number of Common Shares
purchasable under this Warrant at
such date.
A - The fair market value of one Common
Share.
B - Exercise Price (as adjusted to the
date of such calculations).
For purposes of Section 3(a)(ii), if the Common
Shares are, or have been converted into, Common Stock and if the Common Stock is
traded in a public market, the fair market value of the Common Stock shall be
the closing price of the Common Stock reported for the business day immediately
before Holder delivers its Notice of Exercise to the Company. If the Common
Shares are not traded in a public market, the Board of Directors of the Company
shall determine fair market value in its good faith judgment.
(b) This Warrant shall be deemed to have been exercised
immediately prior to the close of business on the date of its surrender for
exercise as provided above, or immediately prior to the Liquidity Event or
record date of the Liquidity Event, as applicable, and the person entitled to
receive the Common Shares issuable upon such exercise shall be treated for all
purposes as the holder of record of such shares as of the close of business on
such date. As promptly as practicable on or after such date, the Company at its
expense shall issue and deliver to the person or persons entitled to receive the
same a certificate or certificates for the number of shares issuable upon such
exercise. In the event that this Warrant is exercised in part, the Company at
its expense will execute and deliver a new Warrant of like tenor exercisable for
the number of shares for which this Warrant may then be exercised.
47
CONFIDENTIAL TREATMENT
4. NO FRACTIONAL SHARES OR SCRIP. No fractional shares or
scrip representing fractional shares shall be issued upon the exercise of this
Warrant. In lieu of any fractional share to which the Holder would otherwise be
entitled, the Company shall make a cash payment equal to the Exercise Price
multiplied by such fraction.
5. REPLACEMENT OF WARRANT. On receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction, or
mutilation of this Warrant and, in the case of loss, theft, or destruction,
on delivery of an indemnity agreement reasonably satisfactory in form and
substance to the Company and, at the reasonable discretion of the Company, an
indemnity bond or, in the case of mutilation, on surrender and cancellation
of this Warrant, the Company at its expense shall execute and deliver, in
lieu of this Warrant, a new warrant of like tenor and amount.
6. RIGHTS OF STOCKHOLDERS. Subject to Section 9 of this
Warrant, the Holder shall not be entitled to vote or receive dividends or be
deemed the holder of Common Shares or any other securities of the Company that
may at any time be issuable on the exercise hereof for any purpose, nor shall
anything contained herein be construed to confer upon the Holder, as such, any
of the rights of a stockholder of the Company or any right to vote for the
election of directors or upon any matter submitted to shareholders at any
meeting thereof, or to give or withhold consent to any corporate action (whether
upon any recapitalization, issuance of stock, reclassification of stock, change
of par value, or change of stock to no par value, consolidation, merger,
conveyance, or otherwise) or to receive notice of meetings, or to receive
dividends or subscription rights or otherwise until the Warrant shall have been
exercised and the Common Shares or other securities purchasable upon the
exercise hereof shall have been issued, as provided herein.
7. TRANSFER OF WARRANT.
(a) WARRANT REGISTER. The Company will maintain a register
(the "Warrant Register") containing the names and addresses of the Holder or
Holders. Any Holder of this Warrant or any portion thereof may change his
address as shown on the Warrant Register by written notice to the Company
requesting such change. Any notice or written communication required or
permitted to be given to the Holder may be delivered or given by mail to such
Holder as shown on the Warrant Register and at the address shown on the Warrant
Register. Until this Warrant is transferred on the Warrant Register of the
Company, the Company may treat the Holder as shown on the Warrant Register as
the absolute owner of this Warrant for all purposes, notwithstanding any notice
to the contrary.
(b) WARRANT AGENT. The Company may, by written notice to the
Holder, appoint an agent for the purpose of maintaining the Warrant Register
referred to in Section 7(a) above, issuing the Common Shares or other securities
then issuable upon the exercise of this Warrant, exchanging this Warrant,
replacing this Warrant, or any or all of the foregoing. Thereafter, any such
registration, issuance, exchange, or replacement, as the case may be, shall be
made at the office of such agent.
(c) TRANSFERABILITY AND NON-NEGOTIABILITY OF WARRANT. Neither
this Warrant nor the Common Shares or other securities issuable upon exercise of
this Warrant (the "Purchased Shares") may be sold, offered for sale, assigned,
pledged, hypothecated, encumbered or in any other manner transferred or disposed
of, in whole or in part, without compliance with all applicable federal and
state securities laws by the transferor and the transferee.
(d) TRANSFEREE OBLIGATIONS. Each person (other than the
Company) to whom this Warrant or the Purchased Shares are transferred, in whole
or in part, by means of a permitted transfer must, as a condition precedent to
the validity of such transfer, acknowledge in writing to the Company that such
person is bound by the provisions of this Warrant to the same extent this
Warrant or the Purchased Shares would be so subject if retained by Holder.
48
CONFIDENTIAL TREATMENT
(e) REPRESENTATIONS AND WARRANTIES OF HOLDER. Holder hereby
represents and warrants that:
(i) Holder is acquiring this Warrant, and will
acquire the Purchased Shares, for investment for the Holder's own account, not
as a nominee or agent, and not with a view to the resale or distribution of all
or any part of this Warrant or the Purchased Shares. Holder is prepared to hold
this Warrant and the Purchased Shares for an indefinite period and has no
present intention of selling, granting any participation in, or otherwise
distributing any portion of this Warrant or the Purchased Shares. Holder does
not have any contract, undertaking, agreement or arrangement with any person to
sell, transfer or grant a participating interest in, any of the Purchased
Shares.
(ii) Holder believes it has received all the
information it considers necessary or appropriate for deciding whether to invest
in the Purchased Shares, and Holder has had an opportunity to ask questions and
receive answers from the Company regarding the terms and conditions of the
issuance of the Purchased Shares. The foregoing, however, does not limit or
modify the representations and warranties of the Company that have been made to
the Holder or the right of the Holder to rely thereon.
(iii) Holder is an "accredited investor" within
the meaning of Rule 501 of Regulation D promulgated by the Securities and
Exchange Commission under the Securities Act of 1933, as amended (the
"Securities Act").
(iv) Holder understands that neither this Warrant
nor the Purchased Shares have been registered under the Securities Act or under
any state securities laws, and, as a result thereof, are subject to substantial
restrictions on transfer. Holder acknowledges that this Warrant and the
Purchased Shares must be held indefinitely, unless subsequently registered under
the Securities Act and all applicable state securities laws or unless exemptions
from registration under the Securities Act and such laws are available.
(f) SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties made in Section 7(e) of this Warrant will survive
the date of this Warrant and will expire upon the earlier of (a) the Expiration
Date or (b) the exercise of this Warrant for all of the remaining shares
purchasable upon exercise of this Warrant.
(g) FURTHER LIMITATIONS ON DISPOSITION. Without in any way
limiting the representations set forth in Section 7(e) of this Warrant, the
Holder further agrees not to make any disposition of all or any portion of this
Warrant or the Purchased Shares unless and until the transferee has agreed in
writing for the benefit of the Company to be bound by this Section 7, provided
and to the extent this Section is then applicable, and:
(i) There is then in effect a registration
statement under the Securities Act covering such proposed disposition and such
disposition is made in accordance with such registration statement; or
(ii) (A) The Holder shall have notified the Company
of the proposed disposition, and (B) if reasonably requested by the Company, the
Holder shall have furnished the Company with an opinion of counsel, reasonably
satisfactory to the Company that such disposition will not require registration
of such shares under the Securities Act. It is agreed that the Company will not
require opinions of counsel for transactions made pursuant to Rule 144 except in
unusual circumstances.
(iii) Notwithstanding the provisions of paragraphs
(i) and (ii) above, no such registration statement or opinion of counsel shall
be necessary for a transfer by (A) the Holder to any of its Affiliates (as
defined below), (ii) a Holder that is a partnership to a partner of such
partnership or a retired partner of such partnership who retires after the date
hereof, (iii) a limited liability company to its
49
CONFIDENTIAL TREATMENT
members or former members in accordance with their interest in the limited
liability company, or (iv) to the estate of any such partner, retired partner or
member or the transfer by gift, will or intestate succession of any partner or
member to his or her spouse or to the siblings, lineal descendants or ancestors
of such partner or his or her spouse, if the transferee agrees in writing to be
subject to the terms hereof to the same extent as if he, she or it were an
original Holder hereunder. For purposes of this Section, "Affiliate" means any
person and/or entity deemed an affiliate of an entity within the meaning of Rule
144 of the Rules and Regulations of the Securities Exchange Commission (the
"SEC") promulgated under the Securities Act for purposes of Accounting Series,
Releases 130 and 135, as amended, of the SEC.
(h) RESTRICTIVE LEGENDS. The stock certificates for the
Purchased Shares shall be endorsed with one or more of the following restrictive
legends:
(i) "The shares represented by this certificate
have not been registered under the Securities Act of 1933, as amended. They may
be sold, offered for sale, pledged or hypothecated in the absence of a
registration statement in effect with respect to the shares under such Act or an
opinion of counsel satisfactory to the Company that such registration is not
required or unless sold pursuant to Rule 144 promulgated under such Act."
(ii) Any legend required by the laws of the State
of California, including any legend required by the California Department of
Corporations and Sections 417 and 418 of the California Corporations Code.
(i) CALIFORNIA SECURITIES LAW. THE SALE OF THE SECURITIES THAT
ARE THE SUBJECT OF THIS WARRANT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF
CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH SECURITIES OR
THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION FOR SUCH SECURITIES
PRIOR TO SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT
FROM QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA
CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY
CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO
EXEMPT.
8. RESERVATION OF STOCK. The Company covenants that during the
Term this Warrant is exercisable, the Company will reserve from its authorized
and unissued Common Stock or other applicable securities a sufficient number of
shares solely to provide for the issuance of Common Stock or other applicable
securities upon the exercise of this Warrant and, from time to time, will take
all steps necessary to amend its Certificate of Incorporation (the
"Certificate") to provide sufficient reserves of shares of Common Stock or other
applicable securities issuable upon exercise of the Warrant. The Company
covenants that it will at all times reserve from its authorized and unissued
Common Stock a sufficient number of shares to provide for the issuance of Common
Stock upon the conversion of the Purchased Shares, if applicable, and, from time
to time, will take all steps necessary to amend the Certificate to provide
sufficient reserves of shares of Common Stock issuable, if applicable, upon
conversion of the Purchased Shares. The Company further covenants that all
shares that may be issued upon exercise of the rights represented by this
Warrant and payment of the Exercise Price or conversion of any such shares
pursuant to the Certificate, all as set forth herein, will be free from all
taxes, liens, and charges in respect of the issue thereof (other than taxes in
respect of any transfer occurring contemporaneously or otherwise specified
herein). The Company agrees that its issuance of this Warrant shall constitute
full authority to its officers who are charged with the duty of executing stock
certificates to execute and issue the necessary certificates for shares of
Common Stock or other applicable securities upon the exercise of this Warrant
and, if applicable, for shares of Common Stock upon the conversion of the
Purchased Shares.
9. ADJUSTMENTS. The Exercise Price and the number of shares
purchasable hereunder are subject to adjustment from time to time as follows:
50
CONFIDENTIAL TREATMENT
(a) MERGER, SALE OF ASSETS, ETC. If at any time, while this
Warrant, or any portion thereof, is outstanding and unexpired there shall be (i)
a reorganization (other than a combination, reclassification, exchange or
subdivision of shares otherwise provided for herein), (ii) a merger or
consolidation of the Company with or into another corporation in which the
Company is not the surviving entity, or a reverse triangular merger in which the
Company is the surviving entity but the Common Shares outstanding immediately
prior to the merger are converted by virtue of the merger into other property,
whether in the form of securities, cash or otherwise, or (iii) a sale or
transfer of the Company's properties and assets as, or substantially as, an
entirety to any other person, then, as a part of such reorganization, merger,
consolidation, sale or transfer, lawful provision shall be made so that the
holder of this Warrant shall thereafter be entitled to receive upon exercise of
this Warrant, during the period specified herein and upon payment of the
Exercise Price then in effect, the number of shares of stock or other securities
or property of the successor corporation resulting from such reorganization,
merger, consolidation, sale or transfer which a holder of the shares deliverable
upon exercise of this Warrant would have been entitled to receive in such
reorganization, consolidation, merger, sale or transfer if this Warrant had been
exercised immediately before such reorganization, merger, consolidation, sale or
transfer, all subject to further adjustment as provided in this Section 9. The
foregoing provisions of this Section 9(a) shall similarly apply to successive
reorganizations, consolidations, mergers, sales and transfers and to the stock
or securities of any other corporation which are at the time receivable upon the
exercise of this Warrant. If the per share consideration payable to the holder
hereof for shares in connection with any such transaction is in a form other
than cash or marketable securities, then the value of such consideration shall
be determined in good faith by the Company's Board of Directors. In all events,
appropriate adjustment (as determined in good faith by the Company's Board of
Directors) shall be made in the application of the provisions of this Warrant
with respect to the rights and interests of the Holder after the transaction, to
the end that the provisions of this Warrant shall be applicable after that
event, as near as reasonably may be, in relation to any shares or other property
deliverable after that event upon exercise of this Warrant.
(b) RECLASSIFICATION, ETC. If the Company at any time while
this Warrant, or any portion thereof, remains outstanding and unexpired shall,
by reclassification of securities or otherwise, change any of the Series B
Preferred Stock as to which purchase rights under this Warrant exist into the
same or a different number of securities of any other class or classes, this
Warrant shall thereafter represent the right to acquire such number and kind of
securities as would have been issuable as the result of such change with respect
to the securities which were subject to the purchase rights under this Warrant
immediately prior to such reclassification or other change and the Exercise
Price therefor shall be appropriately adjusted, all subject to further
adjustment as provided in this Section 9.
(c) SPLIT, SUBDIVISION OR COMBINATION OF SHARES. If the
Company at any time while this Warrant, or any portion thereof, remains
outstanding and unexpired shall split, subdivide or combine the Series B
Preferred Stock as to which purchase rights under this Warrant exist, into a
different number of securities of the same class, the Exercise Price for such
securities shall be proportionately decreased in the case of a split or
subdivision or proportionately increased in the case of a combination.
(d) CERTIFICATE AS TO ADJUSTMENTS. Upon the occurrence of each
adjustment or readjustment pursuant to this Section 9, the Company at its
expense shall promptly compute such adjustment or readjustment in accordance
with the terms hereof and furnish to each holder of this Warrant a certificate
setting forth such adjustment or readjustment and showing in detail the facts
upon which such adjustment or readjustment is based. The Company shall, upon the
written request, at any time, of any such holder, furnish or cause to be
furnished to such holder a like certificate setting forth: (i) such adjustments
and readjustments; (ii) the Exercise Price at the time in effect; and (iii) the
number of shares and the amount, if any, of other property which at the time
would be received upon the exercise of the Warrant.
(e) NOTICE OF RECORD DATE. In the event of any taking by the
Company of a record of its shareholders for the purpose of determining
shareholders who are entitled to receive payment of any dividend or other
distribution, any right to subscribe for, purchase or otherwise acquire any
share of any class or any other securities or property, or to receive any other
right, or for the purpose of determining shareholders who are entitled to vote
in connection with any proposed merger or consolidation of the
51
CONFIDENTIAL TREATMENT
Company with or into any other corporation, or any proposed sale, lease or
conveyance of all or substantially all of the assets of the Company, or any
proposed liquidation, dissolution or winding up of the Company, the Company
shall deliver a written notice to Holder, at least ten (10) days prior to the
record date specified therein, specifying the date on which any such record is
to be taken for the purpose of such dividend, distribution, right or other
event, and the amount and character of such dividend, distribution, right or
other event.
10. RESTRICTIONS ON FUTURE LIQUIDATION PREFERENCE OR
COMPARABLE PROVISIONS. The Company agrees not to authorize, issue or grant any
class or series of securities, or any options, warrants or other rights to
acquire, or securities convertible into, a class or series of securities, of the
Company with a liquidation or comparable preference in the case of a Liquidity
Event (a) to any officer, director or employee of the Company, (b) to any
individual or entity that is an affiliate of the Company or (c) that either
participates with the Common Stock in a Liquidity Event or has a liquidation or
comparable preference greater than the original issue price of the applicable
class or series of securities of the Company (or, if applicable, the original
issue price of any options, warrants or other rights to acquire, or securities
convertible into, a class or series of securities of the Company together with
any additional issue price for the underlying class or series of securities of
the Company).
11. PAYMENT OF TAXES. The Company shall pay all taxes and
other governmental charges, other than income taxes incurred by the Holder or
its permitted transferees, that may be imposed in respect of the issue or
delivery of the Purchased Shares or any portion thereof. The Company shall not
be required, however, to pay any tax or other charge imposed in connection with
any transfer of the Warrant or involved in the issue of any certificate for the
Purchased Shares or any portion thereof in any name other than that of the
registered holder of the Warrant surrendered in connection with the purchase of
such shares, and in such case the Company shall not be required to issue or
deliver any certificate until such tax or other charge has been paid or it has
been established to the Company's satisfaction that no tax or other charge is
due.
12. MISCELLANEOUS.
(a) ENTIRE CONTRACT. This Warrant constitutes the full and
entire understanding and agreement among the parties with regard to the subject
of this Warrant and supersedes all prior agreements, understandings, inducements
or conditions, express or implied, oral or written, with respect to the subject
of this Warrant.
(b) AMENDMENTS; WAIVERS. This Warrant and any term hereof may
be changed, waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement of such change, waiver, discharge
or termination is sought. No waiver of any breach or condition of this Warrant
shall be deemed to be a waiver of any other or subsequent breach or condition,
whether of like or different nature.
(c) GOVERNING LAW; SEVERABILITY. This Warrant shall be
governed by, and construed in accordance with, the laws of the State of
California without resort to that State's conflict-of-laws rules. If any
provision of this Warrant is determined by a court of competent jurisdiction in
any jurisdiction to be illegal, invalid or unenforceable, then such provision
will, as to such jurisdiction, be ineffective to the extent declared illegal,
invalid or enforceable and the other provisions will remain in full force and
effect. If any action at law or in equity is necessary to enforce or interpret
the terms of this Warrant, the prevailing party shall be entitled to reasonable
attorneys' fees, costs and necessary disbursements, in addition to any other
relief to which the party may be entitled.
(e) SUCCESSORS AND ASSIGNS. The provisions of this Warrant
shall inure to the benefit of, and be binding upon, the Company and its
successors and assigns and upon Holder and Holder's permitted assigns, permitted
transferees and legal representatives, whether or not any such person shall have
become a party to this Warrant and have agreed in writing to join herein and be
bound by the terms hereof.
52
CONFIDENTIAL TREATMENT
(f) NOTICES. Any notice required to be given under this
Warrant shall be in writing and shall be deemed effective upon personal
delivery, upon deposit in the U.S. mail, registered or certified, postage
prepaid and properly addressed to the party entitled to such notice at the
address indicated below such party's signature line on this Warrant or at such
other address as such party may designate by ten (10) days advance written
notice under this paragraph to all other parties to this Warrant ("Address"),
upon deposit with a reputable overnight courier, postage prepaid and properly
addressed to the party entitled to such notice at its Address, or upon
transmission by facsimile (with request for immediate confirmation of receipt in
a manner customary for communications of such type and with physical delivery of
the communication being made by one of the other means specified in this Section
as promptly as practicable thereafter).
(g) COUNTERPARTS. This Warrant may be executed in
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
53
CONFIDENTIAL TREATMENT
IN WITNESS WHEREOF, 3NO SYSTEMS, INC. has caused this Warrant to be executed and
delivered by its officers thereunto duly authorized.
Dated: September ___, 2000
3NO SYSTEMS, INC.
By:_____________________________
Name:
Title:
Address:
ACKNOWLEDGED AND AGREED BY HOLDER:
LARSCOM INCORPORATED
By: ___________________________________
Name:
Title:
Address:
54
CONFIDENTIAL TREATMENT
NOTICE OF EXERCISE
To: 3NO SYSTEMS, INC. (the "Company"):
(1) The undersigned hereby elects to:
(a) purchase _________________ Common Shares of 3NO
SYSTEMS, INC., pursuant to the terms of the attached Warrant, and tenders
herewith payment of the purchase price for such shares in full; or
(b) make a Net Issue Exercise, as provided in Section
3(a)(ii) of the attached Warrant, to purchase Common Shares of 3NO SYSTEMS,
INC., pursuant to the terms of the attached Warrant.
(2) In exercising this Warrant, the undersigned hereby
confirms and acknowledges to the Company that the representations and warranties
made in Section 7(e) of the attached Warrant are true and correct on and as of
the date of this Notice and on and as of the issuance of the Purchased Shares
with the same effect as if such representations and warranties had been made on
and as of the date of this Notice and on and as of the issuance of the Purchased
Shares, and that the undersigned will not offer, sell, or otherwise dispose of
any such Purchased Shares except under circumstances that will not result in a
violation of the Securities Act of 1933, as amended, or any state securities
laws.
(3) Please issue a certificate or certificates representing
said Common Shares in the name of the undersigned or in such other name as is
specified below:
-------------------------------------------------------------------------------
[Name]
(4) Please issue a new Warrant for the unexercised portion of
the attached Warrant in the name of the undersigned or in such other name as is
specified below:
-------------------------------------------------------------------------------
[Name]
---------------------- ------------------------------------
[Date] [Name of Holder]
By:
------------------------------------
Name:
Title:
55
